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A Better American Airlines Through Bankruptcy?

What happens when an airline goes through bankruptcy? In the short term, travelers won't notice much. But in the long term, American could emerge as a much more fuel-efficient and passenger-friendly fleet.

American Airlines passengers have seen few visible changes since the world's fourth largest airline filed for bankruptcy last week. Still, the storied carrier, whose 1920s-era origins include a young pilot named Charles Lindbergh, has stormy skies ahead on the route to regaining both the loyalty of big-spending frequent travelers and profitability.

American's financial woes may not change the flying experience much if you have booked a ticket with them this holiday season (though the service might be noticeably improved to try to make you forget the recent headlines). And your frequent flies miles are fine—probably. But it may come out a few years from now as a totally different—and much more passenger-friendly—airline. Here's what to expect from a new American.

Turning Over the Fleet

During the tumultuous 2000s, while fluctuating demand and rising fuel costs forced most of its major competitors into mergers, bankruptcy, or both, American remained afloat. It did so through cost-slashing tactics that included charging for checked bags, discarding free meals, laying off or furloughing pilots and flight attendants, and, for the most part, continuing to fly older, less fuel-efficient jets that it owned outright rather than buying or leasing new ones. All this allowed American Airlines to claim the title of "world's largest airline" for much of the last decade and be the only major U.S. carrier to steer clear of bankruptcy.

It also lost billions upon billions of dollars.

Keeping those older jets may have saved the expense of buying new planes, but they burn greater quantities of pricey jet fuel than do modern airliners. A pair of jet engines on the Boeing 737-800, for example, burn around 200 fewer pounds of fuel per hour than the 1970s-era turbines on the McDonnell Douglas MD-80s, and the Boeing can carry 20 more passengers 1,000 miles farther besides.

Trying to reduce those fuel costs and improve the reliability and quality of the fleet, American, despite its shaky financial standing, has already committed to investing tens of billions of dollars in hundreds of new jets over the coming decade. Robert Mann, a Port Washington, N.Y.–based airline industry analyst and former airline executive, says the bankruptcy proceedings will actually help American to transition to its new fleet more quickly, as the courts allow the company to escape financial obligations on older aircraft that it otherwise would have been forced to continue paying.

American now has 58 of the new Boeing 787 Dreamliners on order. Said to be the world's most efficient long-range, wide-body aircraft, the 787 will enter American's fleet in 2014 to take over for aging 767s. Ten Boeing 777-300ERs are on the way, too. American is set to become the first U.S. airline to operate the world's largest twin-engine airliner starting next year.

The big order is 460 new planes, made up of narrow-body Boeing 737s and Airbus A320s. Beginning in 2013, American will begin receiving 737-800 and A320 jets, allowing for the retirement of more MD-80s and 757s. Later in the decade, the first of the re-engined, even more fuel-efficient versions of those planes—the 737 MAX and A320neo—will join the fleet.

In-Flight Service

If American indeed gets all those new jets, it won't just make the fleet more fuel-efficient. It'll make flying the airline a better experience, too.

"For American to earn the profits that their stakeholders expect, they have to charge premium price," says Henry Harteveldt, chief research officer and head of the airline and travel industry practice at Atmosphere Research Group. Because American is no longer the largest airline, he says, it must improve onboard experience to attract customers willing to pay more.

Low-cost competitors such as JetBlue, Virgin America, and Frontier have installed live TV, movies on-demand and games at every seat on all of their planes. But if you've flown American lately, you might have noticed that most of its domestic jets aren't exactly gadget marvels and still offer only a few overhead displays, which show everyone on the plane the same thing. Hastening the installation of Wi-Fi on its fleet has helped fill the gap, letting passengers use their own wireless-enabled devices to pass the time. But not completely, Harteveldt says.

The airline is at least starting to address those shortcomings. Just a day after the bankruptcy filing, American revealed its plans for the interior of the new 777-300ER. Among the new features: separate first and business class cabins with lie-flat seats, a premium economy product offering more legroom and perks, like live TV and power outlets at every seat. American will install a stand-up bar in the business-class cabin for fliers to stretch their legs and grab a drink or a snack, a feature that only a few overseas airlines have today.

Even if American chooses not to deck out all its new jets with every tech goody, the new narrow-body planes that will become the workhorses of the fleet will offer a marked improvement for passengers over the aging MD-80. For one, the older plane's narrower fuselage limits the size of its overhead bins. Flyers aboard the new 737s will enjoy the new Boeing Sky Interior, a cabin design inspired by that found on the 787 Dreamliner, whose overhead bins are substantially larger.

All these plans rely on American emerging from bankruptcy as a more financially stable, nimble airline. It won't be easy, especially for the airline's employees: Historically, workers almost always lose some degree of job security and benefits during the cost-shedding process of an airline bankruptcy. When the dust settles, however, those mechanics, luggage clerks, pilots, flight attendants, and gate agents could once again be flying one of the world's leading carriers. And travelers could receive the biggest dividends.

Matt Molnar is the editor-in-chief of the aviation enthusiast website, NYCAviation.com

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